Explaining the basics of NFL free agency, the salary cap and contract structures

(Photo courtesy the Detroit Lions)

Next Wednesday, March 12, is one of the most important dates on the NFL calendar; the start of a new league year. It's significant because it's when previously signed contracts expire, and many of those players are free to sign deals with new teams.

Prior to the signing period, there is a two-day negotiating window, informally known as the legal tampering period. During this time, teams are permitted to negotiate with player agents.

Unlike baseball, where free agency drags out for months — essentially from the end of the World Series to the start of spring training — the heavy lifting of the NFL's signing period lasts around a week.

Next week, you're going to see a bunch of numbers and contract terminology thrown around. In an effort to help you understand the dynamics, let's establish a glossary of key terms for you to reference for the next few weeks and beyond.

What is the salary cap?

In the loosest terms, it's the amount teams are allowed to spend on player salaries for the upcoming season. It is a collectively bargained percentage of league revenue.

The NFL utilizes a hard cap, meaning teams are not permitted to exceed it. Other leagues have a soft cap, which allows teams to surpass the figure with a penalty, often in the form of a tax. Those funds are typically redistributed among the teams that stay under the threshold.

The NFL's salary cap will be $279.2 million in 2025, a $23.8 million increase (9.3%) from last year. In the past decade, the cap has nearly doubled, jumping 94.9%.

Types of free agents

There are three types of NFL free agents — unrestricted, restricted and exclusive rights. Status is determined by the number of accrued seasons a player has in the league.

An accrued season is awarded when a player spends six or more games on a team's 53-man roster or an injured list during a single season.

Unrestricted: A player on an expiring contract with four or more accrued seasons. They are permitted to sign with any team at the start of the new league year.

Restricted: A player on an expiring contract with three accrued seasons. Teams have the right to tender these players a one-year contract at one of four levels: First round, second round, original draft round, or right of first refusal with no compensation.

With each tender, the original team is given an opportunity to match an outside offer. If the offer is not matched, draft compensation is awarded at the first three levels.

RFA tenders are not cheap but also not guaranteed. The right-of-first-refusal tender is $2.985 million, escalating to $6.822 million for a first-round tender.

A restricted free agent not tendered before the start of the new league year becomes an unrestricted free agent.

The Lions don't often tender their restricted free agents. However, they did last year, assigning tight end Brock Wright a right-of-first-refusal tender. The San Francisco 49ers then offered him a three-year contract, which the Lions matched.

Exclusive rights: A player on an expiring contract with fewer than three accrued seasons. Teams may tender these players for one year at the veteran minimum ($915,000-985,000 for these players in 2025). If tendered, exclusive rights free agents may not negotiate or sign an offer sheet with another team. The tenders are not guaranteed.

For a reminder of which Lions players are set to become free agents next week, I wrote about them earlier this offseason.

Franchise tags

By utilizing the franchise tag, teams can avoid losing one high-level, unrestricted free agent without compensation. The tag is a one-year, guaranteed contract worth the average of the top five salaries at that position over the past five years or 120% of the player's previous salary, whichever is greater.

Receiving the franchise tag still allows a player to negotiate and sign an offer sheet with another team. If that offer is not matched, the original team receives two first-round picks in return.

A team can only use the franchise tag once each offseason. It can be applied to the same player by one team three times.

Franchise tags range from $6.3 million for a kicker or punter to $40.24 million to tag a quarterback.

For the Lions, cornerback Carlton Davis III is the only logical candidate. The position's franchise tag will be $20.2 million in 2025.

Transition tag

Similar to the franchise tag, it's a one-year contract worth the average of the top-10 salaries at the position. In exchange for the lower price, teams receive no compensation if they decline to match an offer sheet.

The transition tag for a cornerback in 2025 is $17.6 million.

Contract basics

There will be a lot of numbers flying around next week. To help you better understand the context, let's distill the basics of an NFL contract.

The starting point for contracts is length, cost and guaranteed money, but the structure of the deal is more important. It determines the cap hits for the upcoming and future seasons.

All NFL contracts have a base salary, which is the same as most jobs. The base salary has a floor but no established ceiling (Dallas QB Dak Prescott has the largest at $47.75 million). The minimum NFL salary for 2025 is $840,000, but the figure increases with service time. After seven accrued seasons, it caps out at $1.255 million.

Contracts can also include signing bonuses, roster bonuses, option bonuses, workout bonuses, per-game bonuses, and performance bonuses tied to playing time or statistical milestones.

Let's look at those individually:

Signing bonus: It's as simple as it sounds: a bonus attached to signing the contract. For cap purposes, it is spread evenly across the length of the deal, up to five seasons.

For example, let's say a player receives a $12 million signing bonus. If the contract is three seasons, it counts $4 million against the cap each season. If the contract is five years, it counts $2.4 million against the cap each season.

A signing bonus is guaranteed money. Even if the player only plays one season for your team, the full amount will count against your cap. More on that in a bit.

Roster bonus: This is a conditional, one-time bonus tied to a player being on the roster on a certain date, usually 3-5 days after the start of the new league year. It counts fully against the cap the season it is awarded.

Detroit's most notable roster bonus due this year is $4 million, owed to defensive tackle DJ Reader on the third day of the league year.

Option bonus: An option bonus is best thought of as a hybrid of a signing bonus and a roster bonus. It acts like a roster bonus in that it is typically paid in the first few days of the league year. But for cap purposes, it's spread across the remaining years of the contract, similar to a signing bonus.

Za'Darius Smith has a $6.99 million option bonus due this season if the Lions choose to exercise it.

Workout bonus: These bonuses are paid for participating in the voluntary portions of the offseason program (OTAs) and usually range between $50,000 and $250,000. If they are achieved, they are added to the cap hit of the year they are paid out.

Per-game bonus: Again, these are what you think. The bonuses typically range between $10,000 and $30,000 each time a player appears on the active, game-day roster. The cap hit is based on how many games the player appeared in the previous year.

That means if a player has a $30,000 per game bonus and only appeared in 10 games in 2024, the team would have a $300,000 cap hit for 2025. If they end up playing in all 17 games next season, earning $510,000, the extra $210,000 cap hit is applied to the following year. The team would get a cap credit if they played in fewer than 10.

Performance bonuses: Bonuses can be tied to playing-time percentage, such as 50% of defensive snaps, or a statistical milestone like 70 receptions or 10 sacks. They are classified as likely to be earned and not likely to be earned based on whether the player achieved the milestone the previous season. A likely-to-be-earned bonus is charged to the cap and credited back if it's not achieved. An unlikely-to-be-earned bonus isn't charged until it's achieved. It would count toward the following year's cap.

Dead money and June 1 cuts

Dead money is most often associated with cuts. It’s essentially the remaining portion of guaranteed money on the deal, whether future base-salary guarantees or the remaining prorated portions of a signing bonus or option bonus.

A critical component to understand about dead money is that it typically counts against the cap immediately. This is most important with signing bonuses. For example, let’s say a player has a five-year contract with a $15 million signing bonus. As discussed earlier, that means the cap hit for the signing bonus is $3 million per season (the bonus amount divided by the length of the contract).

Now, let’s say that player is cut after two seasons. Because the contract is terminated, a team is no longer able to spread out the remaining $9 million cap hit attached to the signing bonus. It becomes due immediately. So even though that player is no longer on the roster, they will count $9 million against the cap that season.

Dead money cannot be traded. The only way teams can lessen the immediate blow is through a June 1 cut. What that does is it allows a team to split the dead money across two seasons instead of absorbing it in one year. It does not lessen the total obligation.

Contract restructures

When a team needs immediate cap space, they often restructure one or more of their biggest contracts. The most common practice is reducing a player’s base salary for the upcoming year and giving them the difference as an immediate bonus, which is spread across the remaining years of the contract.

For example, when quarterback Jared Goff was traded to Detroit, the team restructured his contract, converting $20 million of his $25 million base salary to a bonus. For the cap, that $20 million was spread evenly across the four remaining years of his deal, reducing his immediate cap hit by $15 million.

Void years

In recent years, teams have increasingly utilized the addition of void years to the end of a contract. This device allows teams to spread signing bonuses and restructure money across more years than the length of the contract.

A player with a large base salary could have two years remaining on his contract. The team could reduce that, add three void years, and now spread the restructured money across five seasons instead of two.

This is great for creating immediate spending power, but it pushes more dead money into the future. And just like when a player is cut, all the remaining dead money attached to void years is due when the contract expires.

Calculating cap hits

A cap hit is base salary plus any prorated portions of the signing bonus/option bonus, plus any workout or per-game bonuses and any likely-to-be-earned performance bonuses.

It’s worth noting that a player’s base salary is often significantly lower in the first season of a multi-year contract. You might hear about a player signing a five-year, $50 million contract with a first-year cap hit far lower than the $10 million average.

That’s because teams backload contracts and often cut players before they see the final year of the deal.

Cap calculation

During the offseason, only a team’s top-51 cap hits count toward the calculation of the cap. Once the regular season begins, all 53 roster spots, the players on injured reserve and a team’s 16-man practice squad are added to the tally.

Any unused cap space is carried over to the next season. Teams are required to spend a minimum of 90% of the available cap over a four-year period.

Compensatory picks

The NFL awards compensatory picks each year. The equation is not publicly available, but it’s based on free agents lost compared to free agents signed the previous offseason. The formula factors in salary, playing time and postseason awards.